Operating in a shadow cast by Donald Trump, the so-called Three Amigos – the leaders of the United States, Canada and Mexico – took a bold stand in defense of the North American Free Trade Agreement and set new trilateral goals for reductions in greenhouse gases at their summit in Ottawa.
Trump tri…
Legislators got good news and not-so-good news June 29 with an update on the Alaska LNG Project from the technical team and the state’s producer partners. (See July 3 issue for part 1 of this story on the state team update from Alaska Gasline Development Corp. President Keith Meyer.)
Steve Butt of E…
North Slope truckers are breathing easier in late June after Gov. Bill Walker’s final state budget decisions allowed maintenance stations on the Dalton Highway to remain open.
The 414-mile Dalton, a gravel road that is partly chip-sealed, is the only surface transportation link to the North Slope oi…
Three senior officials from the U.S. Bureau of Safety and Environmental Enforcement have recently participated in meetings of the Arctic Council’s Emergency Prevention Preparedness and Response Work Group, BSEE has reported. The meetings, held in Montreal on June 13 to 15, included reviews of Arctic…
The general manager of the Alaska Support Industry Alliance and members of the Alliance board visited Washington, D.C., at the end of June to make the case for keeping Chukchi Sea and Beaufort Sea lease sales in the Bureau of Ocean Energy Management’s next five-year outer continental shelf lease sal…
Alaska North Slope crude oil production averaged 491,419 barrels per day in June, down 7.2 percent from a May average of 529,670 bpd. Part of the decline is attributable to Alyeska Pipeline Service Co.’s 36-hour maintenance shutdown of the trans-Alaska oil pipeline June 25-26, with overall ANS produ…
Gov. Bill Walker said June 29 in a press availability that he has signed House Bill 247, the administration’s oil and gas tax credits measure. The measure was amended in both the House and the Senate, and a conference committee substitute garnered sufficient votes to pass.
Walker said good work had…
The Department of the Interior has published a final rule, changing the way in which royalties are calculated for mineral resources, including oil and gas, produced from federal lands. Essentially, the agency has changed the manner in which the value of the resource is determined – the royalties due…
There are two threads to the global liquefied natural gas market: the start of a climb in global demand and a growth in global supply, Mark Finley, BP general manager, global energy markets, told reporters during a press briefing in Anchorage about the BP Statistical Review of World Energy 2016. The…
The number of rigs drilling for oil and natural gas in the U.S. increased by 10 the week ending July 1 to 431.
A year ago, 862 rigs were active. Depressed energy prices have sharply curtailed oil and gas drilling.
Houston oilfield services company Baker Hughes Inc. said 341 rigs were drilling for…
Chevron, ExxonMobil and its other partners say they will spend $36.8 billion to develop more oil in Kazakhstan.
The project is expected to increase production to about 1 million barrels of oil equivalent per day in 2022.
Chevron, ExxonMobil and its partners are forming a venture called Tengizchevr…
The chief executive of Italian oil and gas company Eni says exploratory drilling off Cyprus’ southern shore will begin next year.
Claudio Descalzi said after talks with Cypriot President Nicos Anastasiades July 5 that drilling will ‘for sure’ start in 2017.
Descalzi said the eastern Mediterranean’…
The U.S. energy secretary said July 1 he sees the global oil market coming into balance over the next year as rising demand catches up with a two-year-old supply glut that depressed prices.
Ernest Moniz said supplies should be adequate after the market comes into balance. He said Saudi Arabia has m…
Settlement talks are continuing for PTE Pipeline’s proposed tariff to transport condensate from Point Thomson to Badami.
In a July 6 order the Regulatory Commission of Alaska said PTE Pipeline, ConocoPhillips Alaska and the state of Alaska requested the commission to hold its proceedings in abeyanc…
GCI announced recently that it will expand high-speed terrestrial broadband service to the Northwest Arctic Borough and Norton Sound, delivering services to 10 new communities this year. GCI’s terrestrial for every rural region in Alaska network delivers low latency network connections and high-sp…
Chamber of Shipping of America has recognized 73 vessels of Foss Maritime and their subsidiary companies with the 2015 Jones F. Devlin award for outstanding safety records.
The Jones F. Devlin Award is one of two award programs CSA has sponsored since 1968. The award is given to self-propelled merc…
If you live in Alaska’s Mat-Su valleys, chances are you’ve met Kim Sollien on the trail with her three dogs, at the farmer’s market, or at your local community council meeting. Your kids may have heard her teach hands-on lessons about streams and salmon at their school. From having coffee with commu…
Foss Maritime Co. COO John Parrott will take over the role of president of Foss Maritime, assuming responsibility for the day-to-day operations of the company as of Aug. 1. Current President and CEO Paul Stevens will remain CEO of Foss until the end of 2016. He will then move to Foss’ parent company…
Though it will likely take years for Britain to fully disengage itself from the European Union, if it does at all, the implications of the Brexit vote was enough to hurdle gold through US$1,300 per troy ounce. Up nearly US$300/oz. since the start of 2016, the safe-haven metal is making strides towar…
Constantine Metal Resources Ltd. July 6 reported the start of a 2016 drill program at its Palmer copper-zinc-silver-gold project in Southeast Alaska. Dowa Metals and Mining Co. Ltd., which can earn 49 percent in Palmer by investing US$22 million in the project by the end of 2016, has budgeted US$3.7 m…
Northern Dynasty Minerals Ltd. July 5 reported the closing of a C$2 million private placement. This financing involved the issuance of 4,444,376 units, each consisting of one Northern Dynasty share and one warrant, at a price of C45 cents each. The warrants are exercisable into one common share of t…
Ucore Rare Metals Inc. July 5 said the SuperLig-One rare earth element separation pilot plant has further broken down heavy rare earths derived from the Bokan-Dotson Ridge project in Southeast Alaska into two subgroups – samarium-dysprosium and holmium-lutetium. The company reports that greater than…
Victoria Gold Corp. July 5 said it has agreed to purchase a used all-season camp complete with 110 dorm rooms, industrial kitchen, recreational and mud room, and arctic corridors for C$275,000. The company says the camp is in excellent condition and only minor refurbishment is required for full occu…
Aben Resources Ltd. July 6 said it has consolidated a 23,000-hectare (56,833 acres) land package in the Golden Triangle region of Northwest British Columbia by staking and acquiring land claims in this prolific region. Individual agreements were executed between Aben and Equity Exploration Consultan…
Nighthawk Gold Corp. July 5 reported the start of a 10,000-meter drill program at its Indin Lake gold property in Northwest Territories. This program, expected to be completed by the end of September, will continue to expand recently discovered high-grade gold mineralization at the Colomac deposit a…
Goldstrike Resources Ltd. July 5 reported that this year’s initial prospecting and mapping at its Plateau property in the Yukon has already resulted in a significant new gold discovery 4,000 meters from and on trend with the Goldstack zone. The company said this new find, dubbed the Bonanza zone, co…
Independence Gold Corp. July 5 reported signing an option agreement with Taku Gold Corp. to acquire the Rosebute property in the White Gold district of the Yukon. This 14,387-hectare (35,551 acres) property hosts two gold discoveries known as the Norwest and Hudbay zones. The Norwest zone – located…
Dolly Varden Silver Corp. July 4 said a special committee of independent directors has been appointed to review and evaluate an unsolicited takeover bid by Hecla Mining Co. On June 27, Hecla announced plans to acquire all of the shares of Dolly Varden Silver that it does not already own at C69 cents…
Rockhaven Resources Ltd. June 30 reported the appointment of Marc Blythe as vice president, project development. Blythe holds a master of business administration degree from La Trobe University in Melbourne and a bachelor of mining engineering degree from the Western Australian School of Mines. He h…
WASHINGTON — The Obama administration announced new safety and environmental regulations on Thursday to control in the Arctic Ocean off the Alaskan coast.
These are the latest in a series of Obama administration rules designed to slow the extraction of fossil fuels from American public lands and waters.
The rules fell short of many environmentalists’ demands to cut off Arctic drilling entirely, but companies complained that the regulations would stymie new energy exploration.
“The unique Arctic environment raises substantial operational challenges,” Abigail Hopper, the ’s director of the Bureau of Ocean Energy Management, said in a statement. “These new regulations are carefully tailored to ensure that any future exploration activities will be constructed in a way that respects and protects this incredible ecosystem and the Alaska Native subsistence activities that depend on its preservation.”
Environmentalists were fiercely critical of Mr. Obama after the Interior Department last year put forth a plan to lease vast, untouched waters in the Arctic Ocean’s Beaufort and Chukchi Seas to new drilling. Opponents of drilling complained that exploring for oil in frigid, treacherous waters that host pristine ecosystems could produce an environmental disaster far worse than the 2010 explosion of the Deepwater Horizon oil rig in the Gulf of Mexico.
But factors like falling energy prices and new onshore extraction technologies could prove to be more powerful controls than the government. Last summer, Shell Oil, the first company to exploit the new Arctic leases, ended its plans to drill after initial explorations yielded disappointing results. That cancellation came after years of other accidents and delays by Shell in its efforts to drill in Arctic waters.
A few months later, the Interior Department canceled plans to auction Arctic Ocean drilling leases for the next two years. The announcement of the new safety rules would apply to new areas to be drilled after that time.
The new rules would require companies to have access to — and the ability to promptly deploy — equipment that could cap and contain an underwater oil leak or spill. They would also require companies to have access to a separate rig that could, if an underwater well fails, drill a “relief well” to lower the pressure of the gushing oil. They would require companies to develop the capability to predict, track, report and respond to ice conditions and adverse weather events and to draft response plans that account for adverse conditions.
Environmental groups praised the rules but called on the Obama administration to take steps to halt Arctic drilling entirely.
“The new rules should help lead to better choices by the government and companies in the future,” said Michael Levine, an expert on marine law with Oceana, an advocacy group. But he added, “There is no compelling reason to sell more leases now, and the government should remove proposed Arctic Ocean sales from the 2017-2022 Five-Year Program.”
Erik Milito, the director of upstream and industry operations for the American Petroleum Institute, which lobbies for the oil industry, said that drilling companies already worked closely with the federal government to oversee safety on rigs. Additional rules are not needed, he said.
“This is an unfortunate turn by this administration and will continue to stifle oil and gas production,” he said.
Fetishism is always a temptation for Tory MPs. Their riskiest kink is for strong sterling, rather than peccadilloes tabloids might expose. Margaret Thatcher fetishised a rampant pound, as did George Osborne until the Brexit vote. But currency jingoism has some bad effects and a weaker currency — now at 30-year lows — has upsides, as corporate news shows.
Primark owner instructively mirrors the whole . Its shares fell following the vote, on the assumption garment supplies priced in dollars will cost more to buy with pounds generated from UK sales. A third-quarter update on Thursday showed the real picture is complex and put the shares back close to where they were on June 23.
Primark’s dollar costs are hedged for the rest of this year. Euro earnings from Primark and a big sugar business will meanwhile give fourth-quarter profits a translational boost. Next year Primark’s unhedged margins should contract on higher garment costs. The sugar division’s eurozone margins on UK output will expand. Translational benefits will persist.
The result is, as they say, “a wash”. In contrast, weak sterling is mostly bad for undiversified . This does little more than buy unflattering dollar-denominated clobber overseas and sell it to price-conscious Brits who pay in pounds. The shares have fallen 28 per cent since the referendum.
Sports Direct belongs to the UK-oriented FTSE 250, which is 8.3 per cent lower. The FTSE 100, defying forecasts of a 15 per cent slump, is 3.3 per cent higher. Members are typically: UK multinationals with hefty dollar earnings that report in pounds (); big British groups that earn and report in greenbacks (); or foreign companies with little connection to the UK beyond a London quote (). This insulates City businesses that work for the FTSE 100 against sterling weakness, too.
The downside of a tumbling pound is that it signals the domestic economy is faltering. But a curbed currency can cushion a localised downturn by giving exporters a price advantage. Cheap shale energy was the input cost advantage that helped the US reshore some manufacturing. Lower relative labour costs could do the same for the UK, once it has resolved such trivial issues as trade relations with the rest of the world.
A steppe too far
“I will cross the narrow sea and slay the men in iron clothes!” raged Drogo the Dothraki in TV fantasy epic Game of Thrones. The character is loosely based on historic warlords from Central Asia, whence a real-life land grab for $2.9bn oil production group Exploration and Production may be emanating.
The Kazakh oil production group is listed in London and has an eight-person board that includes four independent directors. Their job is to ensure there is “world-class corporate governance”. So they are rejecting from National Company Kazmunaigas (NC).
The state group owns 63 per cent of KMG EP, though its influence is constrained by a relationship agreement. It wants independent shareholders to support a rewrite. This would shift executive control to the main board from a management panel akin to an executive committee.
If minorities register a Yes vote via proxies due in on July 20, they can swap their equity for a corresponding slice of KMG EP’s hefty cash resources, or $7.88 a share.
This looks like an attempt to take control by the back door and on the cheap, empowering NC’s four nominees to run the show with less involvement from non-execs.
You can’t imagine Drogo would have stooped to a wheeze more worthy of a Tyrion Lannister. Nor should NC. The company should either make a proper offer for its quoted affiliate, or leave the full board to grapple with recalcitrant divisional executives. Minorities should vote No to the reform resolutions.
Bottom Marks
Lombard had a chum who worked for a financial news wire. He once accidentally sent a news flash to traders’ screens proclaiming the Bank of England had cut rates. They had risen. He didn’t keep that job. So you can bet someone from ’s HQ will soon be en route to a shelf-stacking job in Hull.
The retailer , stating total sales had risen 1.3 per cent when they actually fell 0.4 per cent. The market did not seem to care, marking up the depressed shares even though in the troubled clothing division dropped a horrendous 8.9 per cent.
M&S’s slip is a rounding error compared with the accounting messes some other companies have got into. But you remember what retail is, kids? That’s right. Retail is detail. If M&S can’t get its sales numbers right, what chance does it have of persuading disengaged suburban matrons to buy its bras and cardigans?
On June 4, Claudio Descalzi, the chief executive of Eni, Italy’s largest oil and gas company, took a short drive in an armoured, escorted 4×4 from Tripoli’s main airport to the temporary offices of Fayez al-Sarraj, Libya’s UN-backed prime minister, at Abusita naval base.
Mr Descalzi, a 61-year-old veteran of exploration and production in Africa, saw around him a fairly “normal” situation, despite the civil war that has raged in the country for the past few years. “There were people out and about, there were cars circulating. It wasn’t so different from the Libya I knew,” he says.
But for Mr Descalzi, who had not been to Libya since 2014 and had not met senior government officials in the country since the 2011 collapse of Muammer Gaddafi’s dictatorship, there was a deeper reason to be relieved at the improving picture in the North African country.
A modicum of stability in Libya would that the chances of turmoil closing about 20 per cent of Eni’s production were finally receding, removing one of the company’s main sources of geopolitical risk.
“There has been a change and it has been a positive change,” Mr Descalzi says. “We went and we spoke to the prime minister. This hadn’t happened for years. It was the first time since the Arab spring where there was an institutional interlocutor.”
Mr Descalzi’s comfort may only be temporary, since , and chaos could intensify again at any time.
But it highlights Mr Descalzi’s efforts to reshape Italy’s largest company by market capitalisation, and its most high-profile multinational.
Not only has the company had to deal with the but it has also confronted increasing political tension and even violence in countries where it is active, producing some of the most testing times in Eni’s corporate history.
Eni’s fate in such a difficult environment is being closely tracked by Matteo Renzi, Italy’s reformist prime minister, who has been a champion of the company since his rise to power in 2014, and is facing political pressure elsewhere due to mounting problems in the
It was Mr Renzi who picked Mr Descalzi for the top job and the premier has sought to support the company through a range of domestic and foreign policy levers, including several visits together to key African countries in its portfolio such as Nigeria, Mozambique, the Republic of Congo, Angola and Ghana.
“Eni today is a fundamental piece of our energy policy, our foreign policy and our intelligence policy,” Mr Renzi said in an interview shortly after taking office, raising eyebrows for the blunt acknowledgment of the extent to which the destinies of the company and Italy’s national interest were intertwined.
“Eni has not had such a close relationship with the government since the days of [Enrico] Mattei,” says Giulio Sapelli, a professor of economic history at the University of Milan, referring to the company’s founder who died in an air crash near Milan in 1962.
Eni’s ability to succeed may largely depend on a big bet placed by Mr Descalzi in response to the drop in crude oil prices. This involves the company no longer being a sprawling Italian energy conglomerate but a smaller group focused on its core expertise of exploration and production activities — known as the upstream business. The shift in focus included the completion of exits from Snam and Galp, the Italian gas distribution company and the Portuguese energy group. But it also meant paring down its stake in Saipem, a pipeline operator, which helped reduce Eni’s leverage by from its balance sheet.
“We are very comfortable because in the last couple of years we have been so successful in exploration, in production, in discovering and developing new fields,” Mr Descalzi says.
Last year’s discovery of off the coast of Egypt in the Mediterranean Sea, in a spot where other companies had tried and failed to find anything, bolstered Eni’s rationale for the move by highlighting its exploration prowess. And the recent rebound in crude prices — to $49 a barrel this week from a low of $27 in January — has also been welcomed.
So far, the government is backing the decision. “We think that the real value-added of Eni — the heart of its savoir faire and its business — is really in the upstream and we need to value that and to give it the needed visibility for investors,” says Fabrizio Pagani, a senior official at the Italian finance ministry and an Eni board member.
Some, however, are concerned that this could leave Eni even more exposed to any new downturn in crude oil prices, or a prolonged period at current levels.
“I am worried that the decision to bet just on upstream will be lethal for the company,” says Leonardo Maugeri, a former Eni senior executive and a senior fellow at Harvard University. “While other majors have the capacity to weather the storm by taking advantage of midstream [transportation] and downstream [refining] sectors, Eni cannot do this,” he adds.
Eni’s retort to that criticism is that it has not just refocused on exploration and production, but made it more efficient. Between 2014 and 2015, Eni cut its capital expenditure by 17 per cent, mainly by axing new projects. It also reduced its operating expenditure, such as the cost of supplies and support vessels, by 13 per cent. And the company has guided investors to expect more austerity, with capital expenditure falling a further 21 per cent by 2019 and the break-even cost of new projects falling from $45 a barrel of oil equivalent in 2015 to $27 in 2016.
“In a nutshell Eni has been one of the better cost cutters. Their cost per barrel is among the lowest of their group,” says Hamish Clegg, an analyst at Bank of America Merrill Lynch.
In addition, Mr Clegg says Eni’s E&P activities are changing to place a priority on lower cost projects with a shorter time to market than some previous developments.
One example, he says, is the Nené phase 1 project in Congo, where it found oil and began production within a year, by using an existing rig that was suitable for the development rather than building a bespoke but more expensive solution. Zohr, too, fits that bill, since the Egyptian offshore gasfield is located near existing infrastructure which means it can quickly be brought to market once production begins in 2017.
If all goes well for Eni, it will be able to cash in on its exploration successes through the sale of stakes in some projects — including Zohr and a large gasfield in Mozambique — to other producers.
“I’m positive. It’s quite difficult to sell producing assets today … but our assets are good assets,” Mr Descalzi says.
“It’s a bit like the catenaccio style in football,” says Andrea Greco, a journalist at La Repubblica who has co-authored a book on Eni called The Parallel State, referring to the traditionally defensive tactics of the Italian national team. “They are looking for some easy, conventional developments, which they can quickly sell.”
While most analysts have bought into Mr Descalzi’s strategic shift, some doubt whether he will be able to execute it as well as he hopes, which could leave the company vulnerable. Bitter memories linger among investors of the delays and cost overruns that dogged Eni’s Kashagan project in Kazakhstan, a joint investment with other oil majors, which was discovered in 2000 but is only now expected to start producing large quantities of oil after pipeline repairs.
“[Eni] has been truly successful explorers but why has that not led to better returns? Can [Eni] generate enough free cash flow to pay its dividends at $65-per-barrel prices by 2018? This is possible but I think there’s a much higher chance of a dividend cut than for other majors,” says one sceptical analyst, who declined to be named.
Eni was one of the first big oil majors to cut its dividend in 2015, to €0.80 per share from €1.12, and many analysts believe that the company will be able to maintain that level, including Kepler Cheuvreux, which declared it “safe” in a recent note. But if that is not the case, a second cut would be a bitter blow for investors, including Mr Renzi’s government.
One question dogging Mr Descalzi is whether geopolitical turmoil could end up undermining the success of his new exploration model and cost-cutting drive.
Since Mr Mattei’s era, Eni has prided itself on extracting hydrocarbons from poor countries with difficult governments. But this is often seen as a reason why its shares trade at a discount compared with peers that have more activities in safer, advanced economies.
That conundrum has only intensified in recent years. Mr Descalzi’s early days in office coincided with the Ukraine crisis, stoking tension with Vladimir Putin’s Russia, with whom his predecessor Paolo Scaroni enjoyed close ties. Eni pulled out of SouthStream, a controversial pipeline project which the Russian president ultimately cancelled, and shifted its emphasis decisively towards Africa, which is expected to generate the majority of the company’s production between 2016 and 2020, according to data from Kepler Cheuvreux.
Africa, however, has its own problems. While Eni has managed to keep pumping gas out of Libya and Mr Descalzi’s Tripoli visit shows that conditions have improved there, security remains a wild card.
In Egypt, the Zohr discovery has been marred by a over the brutal murder of Giulio Regeni, an Italian doctoral student, as well as the threat of terrorism in the country, which has hurt the economic outlook.
In Nigeria, Eni has suffered attacks and supply disruptions, and Mr Descalzi is the subject of an investigation by Italian prosecutors into alleged corruption in connection with an oil project. He denies any wrongdoing.
For some, this is all too much. “The company is essentially a prisoner of Africa,” says one former executive. “They have concentrated all of their business in areas of the world which are not particularly stable,” he adds.
Mr Pagani of the Italian Treasury says Eni should not “divest” from Africa, “but investing in other areas would be something to consider”.
Mr Descalzi insists it is doing just that, through a “strong diversification” towards East Asia, with budding projects in Vietnam, Indonesia and Myanmar. And he notes that Eni has a presence in Latin America as well as the US and Canada, the UK and Norway. But he does not feel any urgency to go much further. “There are a lot of countries with geopolitical risk and I think you must have the skills, rules, processes and security to cope with it,” he says. “That is a plus for Eni, because we grew up in difficult situations”.
The fear at Eni is that moving into safer OECD countries would undermine a key competitive advantage. “They’re not making chocolates, they are not cultivating roses, they are oil and gas men,” says Mr Sapelli, who is also a researcher at the Enrico Mattei foundation, a think-tank. And Italy shows that developed nations can pose challenges too: a judicial inquiry halted production at a big Eni oilfield in southern Italy this year, and the populist, environmentalist Five-Star movement is rising in the polls to challenge Mr Renzi.
Ultimately, Mr Descalzi’s goal is to transform Eni into a leaner, more agile oil and gas company, which can also begin to integrate renewable energy into its portfolio to meet global emissions reduction standards. Eni shares have underperformed European peers such as BP, Shell and Total, over the past two years — partly because of concerns over geopolitical risk — but more analysts have a “buy” rating on the company’s shares than a “sell” rating now, suggesting confidence in .
Eventually the company could become an appetising merger partner for an oil major. That would put the Italian government on the spot over whether it might be willing to give up control. But Mr Descalzi is leaving no room for such talk at this stage.
“We are very proud of our culture, we are very proud of the achievements we’ve made, and that is our strength. We are quite inaccessible,” he says.
, the Italian energy company, has received several expressions of interest in buying a stake in Zohr, the large gasfield it discovered off the coast of Egypt last year, and is on track to complete a deal in 2017, says Claudio Descalzi, its chief executive.
Such a rapid disposal of a chunk of would provide a boost to Eni, by reassuring investors that it can meet its planned target for €7bn in asset disposals by 2019, and by removing some of its exposure to a project that is very promising but also carries geopolitical risk.
In an with the Financial Times, Mr Descalzi said that “informally” there were “a lot of entities interested” in acquiring a stake in Zohr. “In Zohr we own 100 per cent,” he said. “It’s a big development. And there is room also to accommodate some other partners.”
Eni is expected to sell about 20 per cent of the project and one analyst, who declined to be named, said this could be worth about $1.6bn.
The Zohr gasfield could be appealing to potential buyers because production could start quickly with low development costs because it is close to existing Egyptian infrastructure.
Mr Descalzi did not say who was in the mix. But one person involved in the talks said there was interest from international oil majors and national oil companies.
Mr Descalzi was also optimistic about Eni’s chances of selling a further stake in its Mozambique gasfield — the other key disposal the company was looking at.
Eni sold a stake to China’s CNPC when oil prices were high, but it has accepted that it will earn much less at current oil prices.
“In Mozambique I hope to be able to close by the end of this year,” Mr Descalzi said.
The importance of selling the stakes in Mozambique and Zohr has increased in recent weeks after the collapse of Eni’s talks to sell Versalis, its chemicals business, to SK Capital, a private equity fund, in a deal that could have been worth more than €1bn.
Like other oil and gas companies, Eni is under pressure to cut costs and become more efficient following the since mid-2014, even though they have rebounded this year.
Eni recorded a net loss of €8.8bn for last year, compared with a profit of €1.3bn in 2014.
A sale of a stake in Zohr would allow Eni to find a partner that could share some of the project’s development expenses.
It would also remove some of the political risk associated with operating in Egypt, which has faced instability.
Mr Descalzi was appointed to lead Eni in 2014 by Matteo Renzi, Italy’s prime minister, whose government holds a 30 per cent stake in the company.
But while Mr Descalzi and Mr Renzi are seen to be very close, he dismissed worries about mounting political uncertainty in Italy, with the populist — and environmentalist — Five Star Movement, leading the polls over the ruling Democratic party.
“I’m not involved in politics, and I think that I have to answer to my shareholders, not to politicians,” he said.
Mr Descalzi also called on oil producers both inside and outside Opec to reach a deal on stabilising oil prices, after the in Doha in April.
The Financial Times spoke to Claudio Descalzi, Eni CEO, twice in the past two months. One was a brief telephone conversation after his visit to Libya and the other was a lengthy interview on May 20 at the company’s large refinery in Sannazzaro de’ Burgondi, in the province of Pavia, northern Italy. Here is an edited transcript.
Mr Descalzi, you’ve made a big bet on upstream. How are you feeling about that strategy at the moment?
It’s clear that the choice was right. We are very comfortable because in the last couple of years we have been so successful in exploration, in production, in discovering and developing new fields. And when you are able to find reserves and in a few months you are able to put them in production, and increase your production, you immediately see the positive impacts of your choices.
Do you think that these are the most difficult times that Eni has lived through, at least since it went public in 1992?
I think that is a difficult time for the industry. That is clear. And Eni is in the industry, so it is difficult for Eni like it is for other companies. But I think that we were able to rationalise our company our company very quickly. So it is difficult, but I think that we have been able to give the best of ourselves.
You’ve cut costs and you’ve sold assets. Does there come a point where you’re cutting too close to the bone and you’ve cut so much in these areas that the only next step to cover your cash flow would be to cut the dividend further, especially if conditions persist as they are?
We already cut the dividend, and as we said to our investors, the dividend now is floor, so that means that we don’t want to reduce any more. That is one of our priorities. . But I think that when we say we cut costs, we created a more efficient system. And the big issue now in the industry is really to be efficient.
One criticism of Eni is that they are some of the best explorers in the world, but struggle to deliver a return on capital to match that. How do you respond?
I think that is a perception that came from the big, complex projects like Kashagan that create a view that I think is an old view.
Do you worry that you’re overweight in gas at the moment? Gas is the fossil fuel of the future, however there seems to be an oversupply of gas, and your big discoveries are all gas. Is that something that concerns you a bit?
In the medium term gas will really be essential to our growth. We have to consider that after the COP21[climate change agreement] all the different countries are relying much more on gas, and gas absolutely is the only fuel that can accompany renewables. Because it’s more efficient and the less polluted fossil fuel.
Where are you on the disposal strategy? Particularly in terms of selling off parts of your big discoveries. Mozambique, for instance. Do you think you can still find a buyer at this point? Or has the slump in the gas price made it much more difficult?
I’m positive. It’s quite difficult to sell producing assets today, because you rely on the price of today and in the short and medium term of the next four years. But our assets are good assets. Very low cost conventional assets, also with a very low development cost and operating cost. In Mozambique I hope to be able to close by the end of this year. In the next couple of years our target is to reduce our participation, our share in Mozambique, and also in Egypt, in Zohr. Because in Zohr we own 100%. It’s a big development. And there is room also to accommodate some other partners.
Will Mozambique be harder to sell than Zohr ?
It depends. We’ve already sold it at 20% in a different period. I think that Mozambique is more a strategic acquisition for a possible buyer, because it’s a huge quantity of gas. It’s for the long term. It’s well positioned with respect to the best growing market in the future that is the Pacific area.
What’s the timing on Zohr and how much do you want to sell of Zohr?
It is something that we could have by 2017.
Have you already received expressions of interest?
Informally, yes. I think that there are a lot of entities interested.
Eni is disproportionately present in countries with high geopolitical risk. Should it diversify out of those countries to balance itself out. Or is that your competitive advantage and you should just keep doing what you’re doing?
I land in the middle. I think that in the last four or five years we’ve started strong diversification toward the East. So toward East, Far East, and countries like Vietnam we increase our working interest, our exploration in Indonesia, Myanmar.
We are in Alaska, Gulf of Mexico. We are in Venezuela. We are in Ecuador, we are in Mexico now. We are in UK, we are in Norway. We are in Kazakhstan, we are in China. So I think that Eni is present in more than 44 countries. So we have a diversified presence. There are a lot of countries with geopolitical risk, and I think that you must have skills, rules, process, security processes to be able to cope with [that]. And I think that is a plus for Eni, because we grew up in difficult situations, and I think that we show to everybody that we are able to cope and work also in situations that are not very easy. Maybe that is not true for all the companies, so that is a competitive advantage that we have.
Obviously your big exploration success recently has been the Zohr project. Can you tell us some of the details of the contracts that you were able to sign with the Egyptian government in terms of what was the agreement on price, what was the agreement on other aspects?
I cannot disclose all the details of the commercial agreement. I can say that it is a PSC, so it’s a Production Sharing Contract. We have a floor, we have a ceiling. So we are sure that we don’t have super upside but we don’t have downside.
Did the case of Giulio Regeni, the Italian student murdered in Cairo, affect the development of Zohr in any kind of way? Did it affect relations with the Egyptians?
The case of Regeni is unfortunate. The terrible case of Regeni clearly put us in an uncomfortable position, not just because he is Italian, but he is a human being. We wrote to Amnesty International and we talked with our Egyptian counterpart, and clearly that we are absolutely against this kind of stuff and we want clarity and transparency. I think Egypt is trying to do what is good in this difficult moment. It is not impacting our operations, because we are working offshore, we are still in exploration phase. We are drilling our wells. But it is clear that we are not happy about the situation.
When you look at Libya, how do you see the situation at the moment?
I think that also from an operational point of view I saw that the country is trying to make a big effort to stay together. From a political point of view, a very important step has been taken and now again discussion is continuing. Some different points of view, but I think that Libyans are working very well to try to find a solution. It’s important that also outside Libya everybody will work and co-operate proactively, in a positive way, to help them to find a solution.
How worried are you about Isis ?
They are in Sirte so they are far from our facilities, and especially from the offshore facilities, which are 120 or 200 kilometres from the shore. And most of the gas is coming from the offshore. More than 65% of the gas. And so we hope really that the situation remains like that. I feel that is improving. I feel that Libyans want really to create again a big, strong country, united country.
Turning back to Italy, some say that the Renzi government has been as close to Eni as any other government in history, or even more so than in the past. But the Five Star Movement could take over the government here, and we know that they have a staunch environmentalist platform. Is that something that concerns you? That there could be a possible change of government here that doesn’t go in your direction?
No, I don’t have any concern, because I work in Eni and for Eni, and so I really do what I have to do for my company. It’s clear that if Eni can achieve good results, it’s positive for the country, and not just from a financial economic point of view, but also from a reputational point of view.I am not working for the government. I am working for my company. I’m not involved in politics, and I think that
I have to answer to my shareholders. Not to politicians.
There are two things that you hear about the relationship between Eni and the government. Sometimes people say Eni is an extension of the Italian government operating overseas, and sometimes you hear that Eni dictates Italian foreign policy. Is it the first or is it the second?
I think that both things are wrong and fake. We are not an extension of the Italian government, and absolutely we don’t dictate anything to anybody. We try just to do our work. I think that we have normal exchanges with the government, like we have with other shareholders. Clearly we don’t aim at all to make any kind of foreign policy, because we make exploration and find reserves. Sometimes we find big reserves that are important for the hosting countries. And they became important sometimes for Europe and Italy as a source of diversification in terms of resources. And they create interest. But the aim is not to make any kind of policy.
Do you think Eni could become a takeover target in the next few years? Or could participate in some kind of big strategic deal like the ones that were contemplated?
I don’t think so. We have a low debt, we have a wonderful position. High production. A lot of exploration. . In any case, that is more a question for the shareholders than for the company.
Have you had any discussions about a possible merger? Have you been approached by, say, Total?
Never in my life. I am so focused on what we are doing in this transformation, this business, that we don’t have time to talk about other things that can reduce our focus on the operations.
Do you think that a big, strategic tie up would be too much of a taboo for Eni?
We have a very strong culture. We are a very strong culture that has been built from starting from our founder, from Enrico Mattei. We are international, because we have most of our activity outside Italy, but we are really Italian. That is a culture of people who started from nothing. We were the last to go to Africa and we became the first in Africa. And we are very proud of our culture, we are very proud of the achievements we’ve got, and that is our strength. So we are quite inaccessible.
What’s your outlook at the moment on oil prices?
It’s between $45 and $55 per barrel. At least for the next year. For 2016 and 2017. I don’t know if we can get a big jump. I think after 2018 when the big hole that we created with the lack of investment, maybe can create some jump, but I think that now the floor. I said in Davos two years ago that we need an agreement between OPEC and non-OPEC. And I believe that that is the only possible solution. So I think that . . . I hope that in the future they can find an agreement…
What are the chances of that?
I hope that they can . . . In English you say: Try and try and try again, if you don’t succeed. So I hope that they can try again. Because that is a reasonable solution. You cannot live in a world where you don’t know exactly what will be the price in two or three or four years.
US consumers last year took advantage of lower petrol prices to drive more and splash out on more expensive gasoline, as well as dining out at restaurants, as they spent the majority of savings from the oil price tumble.
from the JPMorgan Chase Institute examining an anonymised sample of 1m Chase customers across 23 states shows that households spent 58 per cent of their potential savings from lower oil prices in 2015. Of this, the biggest business beneficiaries were restaurants and retailers, with households boosting spending on non-gas goods and services by $200.
Lower petrol prices also prompted them to change travelling habits, as households spent $150 of their potential savings at gas stations while forking out less on public transport. While petrol prices were 25 per cent lower in 2015 than 2014, spending at petrol stations only fell 19 per cent, the research found.
“This uptick in spending at gas stations could be attributable to an increase in the number of gallons purchased, a shift to more expensive gas options, or an increase in purchases at convenience stores located at gas stations,” the report found. “In 2015, this contributed to a reversal of the five-year trend of declining real gas consumption and vehicle miles travelled.”
The fate of America’s savings at the pump has been the subject of intense debate ever since the oil price slide began. Some economists have argued that households were being ultra-conservative and saving more, but JPMorgan’s analysis suggests households spent the bulk of their $630 in potential savings. Petrol prices as surveyed by JPMorgan were $2.60 on average in 2015, compared with $3.47 the year before.
Some 45 per cent of the drop in petrol spending, or $200, went on non-gas goods and services, mainly restaurants and retail. The sting in the tail is that these sectors may be most vulnerable to a setback if oil prices see a major resurgence, JPMorgan noted.
Oil prices rose for a second day on Thursday, with Brent crude futures trading at $49.30 a barrel.
So where did the remainder of the petrol-related windfall end up? Some of the savings may have been spent on vehicles or other durable goods, which did not show up in debit and credit card transactions. In addition, households may well have stashed away some of the unexpected savings. The personal savings rate increased from 4.8 per cent in 2014 to 5.1 per cent in 2015, according to official data.
The potential savings from the petrol-price drop were significant for many American households. For a middle-income household, they amounted to more than half of one month’s rent or mortgage payment.
Households earning less than $30,000 benefited the most, the research concluded: their saving from lower petrol prices was the equivalent of a 1.4 per cent boost to discretionary income.
In spite of renewed global economic and political tumult, US policymakers have been counting on American households to keep domestic growth on track in the second half of the year. from the latest policy meeting of the US Federal Reserve showed participants believed consumer spending growth had picked up in the second quarter from the first.
However, some also struck a note of caution. “A few participants expressed caution about the outlook for consumer expenditures, noting that slower increases in employment and higher energy prices could restrain spending.”
